Short Selling Debate

[refined silver]

So people like madness and Irrational Exuberance to drive stock up but doesn't like it when people discover the stock is a pile of sh*t and short it?

These short seller are not some junkies who just punk their money..these are the clue guys of financial world, they look through your book and see your weakness and attack it.. It make the market efficient and highlight the stock weakness to the public so you can either stay away or join the Irrational Exuberance.

Without hackers computer will not be as secure, these guys discover weakness and make vendor take notice... Same goes with the short seller they high light company weakness and so directors of these company take notice and dont put themselves in the spot light.

Beside short selling cannot be stopped, that article just high light until there is transparency some institution wont lend stock... Transparency is the only thing they can do and I welcome transparency.

Weak company still be under the spot light and they will bring these company down....They done it to Enron, ABS and the like and they will do it to many more in the future. Your only defense is to invest in a well run company with good balance sheet and don't treat cheap debt as some kind of magical weapon to get rich quick.

I've no problem with shorting either. One issue is transparency, and the other is manipulation. Jim Cramer a few months ago shocked his host by not only openly admitting stock manipulation from when he was a hedge fund manager, but actually how do it! Anything that gets rid of this is good.

 

[Trembling Hand]

I've no problem with shorting either. One issue is transparency, and the other is manipulation. Jim Cramer a few months ago shocked his host by not only openly admitting stock manipulation from when he was a hedge fund manager, but actually how do it! Anything that gets rid of this is good.

And of course you would be equally wanting to get rid of the momentum that hedge funds create when they are long as well.

 

[bergers_n_fries]

short-selling

i have tried time and time again to 'get it'

how on earth does it work???

embaressing question i know...

cheers

 

[jaeyon]

Re: short-selling

i have tried time and time again to 'get it'

how on earth does it work???

embaressing question i know...

cheers

its like your borrowing stocks.
say you think CBA shares will fall during the day, however you dont own CBA. you can call up your broker and say you wish to short sell $10 000 worth of CBA stocks. your broker will then lend these stocks to you (i.e they'll lend you either their own stocks, or clients stocks). you then have the obligation to buy back the number of shares you have sold at a later point in time.

the difference between the sale price and purchase price is your profit less any brokerage.

also be wary because brokers can ask you to buy the stocks back (even if the price is higher then what you sold them for)

 

[metric]

Re: Short Selling

should be outlawed and guilty traders hung by the gonads.

 

[nomore4s]

Re: Short Selling

should be outlawed and guilty traders hung by the gonads.

Why?

 

[metric]

Re: Short Selling

If people want to play the downside use options by buying puts or selling calls.

Allowing someone or br firm or any entity to sell shares they didn't previously buy to own is pure market manipulation and is used by the large players and hedge funds to shake out shares so they can buy them at manipulated low prices...or destroy capital formation and starve companies trying to survive, but that would make the market a more balanced and fair game and that's something the big players will fight to their last breath because they are the ones that are profiting the most.

The bottom line is you should not be allowed to sell shares into a market if you didn't take the risk to go long in the first place. That's not a fair marketplace and undermines what the markets are designed to do which is the creation of capital. imo

 

[chops_a_must]

Re: Short Selling

The bottom line is you should not be allowed to sell shares into a market if you didn't take the risk to go long in the first place. That's not a fair marketplace and undermines what the markets are designed to do which is the creation of capital. imo

Ahahahahahahahahahahahhhahahahahahahahahahhaahahhaahhahahahahahaahahahahahahaha!

Life's not fair kiddo, get used to it!

Seriously, markets aren't a source of creation of capital, the economy is. Markets are just a reflection of that.

Without shorting, there is no efficient market place. Assets stay artificially high. There would be no point in writing or buying puts if people weren't allowed to sell.

No-one would write calls if people weren't allowed to sell, because there would be no risk.

And what do you get if you add up all these proposed changes? Illiquidity. The options and futures are already bad enough here. They don't need to be made worse...

 

[Trembling Hand]

Re: Short Selling

If people want to play the downside use options by buying puts or selling calls.

Allowing someone or br firm or any entity to sell shares they didn't previously buy to own is pure market manipulation and is used by the large players and hedge funds to shake out shares so they can buy them at manipulated low prices...or destroy capital formation and starve companies trying to survive, but that would make the market a more balanced and fair game and that's something the big players will fight to their last breath because they are the ones that are profiting the most.

The bottom line is you should not be allowed to sell shares into a market if you didn't take the risk to go long in the first place. That's not a fair marketplace and undermines what the markets are designed to do which is the creation of capital. imo

i bought in originally @60c. traded in and out as the price fluctuated and actually made a small profit. then i bought some silver(ish) shares mmn, mgo, mar, and aim (which isnt silver). CNP went down to 31c, so i sold all my others and bought back into cnp.
i like silver mines. i'll buy back in later.

What you did with the above silver trades have ABSOLUTLY nothing to do with creation of capital. What a lovely little bit of hypocrisy.

 

[metric]

Re: Short Selling

What you did with the above silver trades have ABSOLUTLY nothing to do with creation of capital. What a lovely little bit of hypocrisy.

i will be a hypocrit in my own house if i want to!!

 

[tayser]

Re: Short Selling

Short Uncle Sam's Peso and you won't be hung by your gonads

 

[wayneL]

Re: Short Selling

If people want to play the downside use options by buying puts or selling calls.

Allowing someone or br firm or any entity to sell shares they didn't previously buy to own is pure market manipulation and is used by the large players and hedge funds to shake out shares so they can buy them at manipulated low prices...or destroy capital formation and starve companies trying to survive, but that would make the market a more balanced and fair game and that's something the big players will fight to their last breath because they are the ones that are profiting the most.

The bottom line is you should not be allowed to sell shares into a market if you didn't take the risk to go long in the first place. That's not a fair marketplace and undermines what the markets are designed to do which is the creation of capital. imo

There would be no options market without short selling. BABOOM

 

[It's Snake Pliskin]

Re: Short Selling

should be outlawed and guilty traders hung by the gonads.

Dogma is not always a good thing.

 

[cordelia]

firstly,can i please preface this post with a statement that I do not know much , probably little, about short selling. However, after observing what has unfolded over the last few weeks I have formed an opinion, and I must stress that it is only an opinion, regarding short selling.

Its about balance..more buyers price goes up
more sellers price goes does

presure, presure, presure

I think people have to really observe what is goimg om instead of relying on here say

look at the charts they might have the answer (opinion of course)

 

[lusk]

Re: Short Selling

If people want to play the downside use options by buying puts or selling calls.

Allowing someone or br firm or any entity to sell shares they didn't previously buy to own is pure market manipulation and is used by the large players and hedge funds to shake out shares so they can buy them at manipulated low prices...or destroy capital formation and starve companies trying to survive, but that would make the market a more balanced and fair game and that's something the big players will fight to their last breath because they are the ones that are profiting the most.

The bottom line is you should not be allowed to sell shares into a market if you didn't take the risk to go long in the first place. That's not a fair marketplace and undermines what the markets are designed to do which is the creation of capital. imo

Short selling is not "selling shares" and so the share price is pushed down. It is not Sell first then Buy later at a cheaper price. What you are doing is locking in a selling price, if the share goes down you can then Buy the shares and then Sell the shares at your locked in selling price.

 

[chops_a_must]

So who thinks short selling is worse/ more unethical than what ANZ are doing with their indiscriminate dumping of shares that may legally belong to others?

And what is ASIC/ ASX doing about this as compared to whinging about short selling?

 

[blablabla]

So who thinks short selling is worse/ more unethical than what ANZ are doing with their indiscriminate dumping of shares that may legally belong to others?

And what is ASIC/ ASX doing about this as compared to whinging about short selling?

Very good point, chops.

As an interesting aside, this is the way markets work. Selling is selling nomatter who is doing it or why. A considerable volume of forced selling (or evil shorters) will always result in an oversold situation. The result is happy hour for those quick enough to grab the bargains. From the information released so far it would appear that the best bargains resulting from the ANZ selloff will be on offer today and perhaps tomorrow.

 

[cuttlefish]

I think what has been highlighted by the Opes prime situation is the inaccuracy of the 'lend/borrow' terminology and also the lack of transparency in relation to stock lending.

When a stock is loaned it is not really loaned it is transferred to the borrower.
It is a stock transfer with an agreement to return equivalent stock at a later date. In the interim the 'lender' is effectively an unsecured creditor of the borrower as far as I can tell, with their only recourse any cash margin that was lodged for the borrow which would be woefully inadequate in the situation that the lender went into bankruptcy. If Australian superannuation funds are taking the risk of lending stock in this way they are behaving very irresponsibly.

Or does an Australian Master Securities Lending Agreement provide additional protection to the stock lender in the case of the borrower going bankrupt that I'm unaware of? (I doubt it).

Consider this:

If I loan somebody my car I don't let them sell it - they can't sell it because its not their car - try going to Hertz and borrowing a car and then selling it - you'll be up on criminal charges. So thats myth number one about stock lending - it isn't stock lending its in fact a stock transfer with an agreement that equivalent stock will be returned at a later date.

To give an example of what stock lending is:

Lets say I own a car worth a nominal $30k. I give the car to someone else to sell (yes the title is transferred to them) in exchange for a legally binding commitment by them to give me back an equivalent car whenever I request it. They pay me $2k fees for the priviledge and they also lodge a $5k cash deposit with me to protect for any downside. The guy I give the car to then sells it for $30k.

So where am I. I had a $30k car. I now have $5k cash and a promise from some guy that doesn't own a car to give me back an equivalent car at some point later on.

So what if he decides to spend the $30k he got for selling the car on booze instead of buying me back another car and goes bankrupt. What is there that I can claim back, where is the security. The car is sold. There is NO security.

So really I've lent the guy $25k unsecured as far as I can tell. Thats a good recipe for disaster - you wouldn't find many banks lending that way. (ANZ certainly didn't - thats why they are the ones left holding the stock when the proverbial hit the fan).

The only sensible way to lend stock would be to have a full cash cover matching the current market price - no more, no less - because there is NO security on the debt created once the stock has been transferred to the borrower/shorter.

This is different to a margin loan to purchase additional stock, where the margin lender has security over hard assets - stock - that is more valuable than the loan.

I don't have a problem with short selling but I have a massive problem with the lack of regulation around stock lending and the risks being taken by institutions that loan stock.

 

[Trembling Hand]

When a stock is loaned it is not really loaned it is transferred to the borrower.
It is a stock transfer with an agreement to return equivalent stock at a later date. In the interim the 'lender' is effectively an unsecured creditor of the borrower as far as I can tell, with their only recourse any cash margin that was lodged for the borrow which would be woefully inadequate in the situation that the lender went into bankruptcy. If Australian superannuation funds are taking the risk of lending stock in this way they are behaving very irresponsibly..

Nah Nah Nah. cash of 110% is held in trust against that loan!!!

If I loan somebody my car I don't let them sell it - they can't sell it because its not their car - try going to Hertz and borrowing a car and then selling it - you'll be up on criminal charges. So thats myth number one about stock lending - it isn't stock lending its in fact a stock transfer with an agreement that equivalent stock will be returned at a later date. ..

Poor example..

Lets say I own a car worth a nominal $30k. I give the car to someone else to sell (yes the title is transferred to them) in exchange for a legally binding commitment by them to give me back an equivalent car whenever I request it. They pay me $2k fees for the priviledge and they also lodge a $5k cash deposit with me to protect for any downside. The guy I give the car to then sells it for $30k.

So where am I. I had a $30k car. I now have $5k cash and a promise from some guy that doesn't own a car to give me back an equivalent car at some point later on.

So what if he decides to spend the $30k he got for selling the car on booze instead of buying me back another car and goes bankrupt. What is there that I can claim back, where is the security. The car is sold. There is NO security.

So really I've lent the guy $25k unsecured as far as I can tell. Thats a good recipe for disaster - you wouldn't find many banks lending that way. (ANZ certainly didn't - thats why they are the ones left holding the stock when the proverbial hit the fan).

The only sensible way to lend stock would be to have a full cash cover matching the current market price - no more, no less - because there is NO security on the debt created once the stock has been transferred to the borrower/shorter.

This is different to a margin loan to purchase additional stock, where the margin lender has security over hard assets - stock - that is more valuable than the loan.

I don't have a problem with short selling but I have a massive problem with the lack of regulation around stock lending and the risks being taken by institutions that loan stock.

Nah. Nah. Nah. Shorts sells are margin loans. Monitored in real-time every day against margin. not enough margin. position gets liquidated. Not hard to buy back stock. Your beating this up into something its not.

The risk come from a broker going bust and not able to settle. And if that happens as 90%(??guess) of transactions are longs its the integrity of the system you have to worry about not stock lending secured against margin.

 

[nomore4s]

Cuttlefish

I think the car is a poor example.

With short selling, the margin loan mechanics are the same as going long, at least with my broker, my account goes outside a certain range and I have to either put more money in, or sell/buy more stock depending if I'm long or short. So there is just as much security over the loan if I go short or long.

With shorting stocks all the broker has to do is buy back stock to close out a clients position, and as we all know the broker can do this at anytime. It's not like the car example where you can't just go and repo the car, there is always stock for sale.